Report of Findings
According to the calculations that were undertaken, Bill and Ryan you would only run the project of the City of Wascana Par-Three golf courses for the 2-year period, if you are guaranteed of making a profit of at least $30,000 each per year. This would can be assured if the cost of paying the license fee for the first year is $149,615 and for the second year $188,071.
In order to determine whether you (Bill and Ryan) should pursue this project or not, my associate and me have calculated estimates of profit levels through various sources. These sources consist of an inflow and outflow statement, showing the entire inflows from the running of the business and its outflows while at the same time providing an added feature in order to calculate the net profit and loss of both gold courses. These statements consist of monthly inflows and outflows of the business and Revenue results for the 2 golf courses, which consist of the Oak Valley Course and the Oak Ridge Course.
This is taking into account that the project will only be for 2 years. First, Revenue has been calculated for 19X8 and the way that this was done was by fees being collected from Adults, Seniors/Juniors and Students who will all attend the golf course greens. The Revenue items consist of 2 sources, which are; Green Fee rates multiplied by the Attendance from Greens. The Total Revenue for 19X8 was $70,265.80. The way that the $70,265.80 was calculated was by adding up the fees received under the above 2 sources from Adults, Seniors/Juniors and Students. The total receipts from Adults were $54,990.38, from Seniors/Juniors they were $10,366.68 and from Students were $4908.75.
This process was repeated for 19X9, as well as for the Oak Ridge Course, over that 2 year period. Except that Oak Ridge course also generated revenue from yearly passes.
In terms of Profits for the Oak Ridge Course for 19X8 and 19X9, the Total Profits were $115,741.47 and $131,563.55 respectively. Due to the 2 courses being run for 7 months each year, losses have been incurred for the Oak Ridge course for the months of April and October over the 2 years, as the golf season is from April to October. For April 19X8, the loss is worth $4,680.32 and for October 19X9, it is $11,157.76. The profits for each month were calculated by subtracting the Cash Inflows from the Cash Outflows and by adding back Drawings and the Principal Loan repayment. Furthermore, it was subtracted from Capital.
Net Cash Flows for 19X8 and 19X9 concerning the Oak Valley and Oak Ridge Courses respectively, were simply calculated by Subtracting Cash Inflows from Cash Outflows. This process was done throughout the 7 months.
There are small losses made in 2 of the 7 golf season months over the 2-year period. This has simply occurred due to the costs such as advertising etc. being allocated evenly across those 7 months, from April to October. If these costs where allocated using a better-cost driver then these 2 months may have provided small profits.
As a result, careful thought must be given as to whether the project should be pursued, as the business fee remains the only barrier, due to there not being one fixed figure. Subsequently, this will cause a lot of uncertainty. In order to be successful in gaining the option to run the golf course for two years the bid of $20,000 will be looked at, along with the license fee you (Bill and Ryan) are going to offer to the City of Wascana. In order for you (Bill and Ryan) to be satisfied, earnings of $30,000 a year each are necessary. In order to achieve this, taking all other considerations of revenues and expenses into account for the two years, the license fee in the first year can be a maximum of $149,615. This will assure you (Bill and Ryan), earnings of $30,000 profits each. If it is less than $149,615 in the first year, then Bill and Ryan could even make more than $30,000 each per year. As for the second years license fee, $188,071 is the maximum, assuring Bill and Ryan earnings of $30,000. As to whether the City of Wascana will be satisfied with your proposed offer for the license fee, I don’t know the answer. But I do know that if they expect more money for the license fee, than your desired profits will become less achievable.
Other factors that must be taken into consideration are first of all, instead of running the Golf Courses for 7 months, you (Bill and Ryan) should contemplate running them both, all year round, which means throughout the 12 months. Due to the fact that for the other 5 months you will incur some costs whether the golf course is open or not, such as keeping water, gas, electricity and telephone connections connected. Also there was no exception made for losses for theft by employees. To reduce this risk an idea is that one of you should consider running the golf courses full-time, in order to watch over the employees, just in case they engage in theft or other criminal activities, which may end up having a negative impact upon the business. Otherwise, employees could steal money that is being paid from the public using those courses, as tracking large amounts of cash is very hard to keep track of. Taking this into consideration, one of the managers may be dropped giving the wage of $28,000 to whoever works at the golf course.
However, there is also a negative side to this because the project will only be for 2 years, the partners who would take up this option should consider employment after that period. If one of you choose to take up this option and leave your current job, then he may not be able to go back to their job after the 2 years, and if that is the case, then this option losses its benefit. If he who pursues this option can go back to their job after 2 years, then maybe the option should be taken up.
As a result of all of the following calculations, in order to be successful with the bid and at the same time achieving the desired profits each, the maximum amount of license fee to be offered to the City of Wascana should be $149,615 for the first year and $188,071 for the second year. Also other considerations and options should be thought carefully about.